Feeding American Dreams

Snack inventor brings vision of future to philanthropy

After Paul Merage hit upon the basic formula for the Hot Pocket, he began filling the calzone-type sandwich with anything that would sell — pizza, barbecued beef, even broccoli and cheese — before spinning off variations like the Lean Pocket and Croissant Pocket.

The microwaveable snacks were a runaway success, and in 2002, he sold his company, Chef America, to Nestlé for $2.6-billion. Now Mr. Merage, 61, is creating operating foundations at the same pace that he once invented new Hot Pocket flavors.

One foundation started by Mr. Merage, who immigrated to the United States from Iran, and his wife, Elisabeth, focuses on expanding opportunities for American immigrants.

A second helps Israeli companies learn how to better market their products to Americans. And a third, which was just created in February, encourages affluent older people here in Orange County to donate their Social Security checks to programs that work with children ages 2 to 6.

And in March Mr. Merage pledged $30-million to the business school at the University of California at Irvine, where he has been heavily involved in helping the school chart a new strategic course.

Changes in the Economy

The operating foundations are supported by the Paul and Elisabeth Merage Family Foundation, which has $30-million in assets, and his parents’ foundation, the $20-million Andre and Katherine Merage Foundation, which he also oversees. (His parents had a stake in Chef America; Andre Merage died in 2001.) Mr. Merage’s net worth was estimated at $550-million by Forbes in 2002, the only time he appeared on the magazine’s list of the 400 richest Americans.

Mr. Merage says he created the Hot Pocket in the early 1980s because he saw two large trends coalescing: More women were going to work, and the microwave had the potential to save them time, if only someone could figure out how to make a hand-held sandwich that tasted good and wasn’t soggy. After two years of research, Hot Pocket’s signature “crisping sleeve” solved the problem.

When Mr. Merage switched gears to philanthropy, he began aiming for the charitable equivalent of the Hot Pocket.

“I knew that I wanted to do something meaningful,” he says. “And the way my mind works, which is how it was in business, I felt that if I could do something that was unique, it would be better than just doing what everybody else was doing.”

‘Innovation Economy’

Mr. Merage’s philanthropy is influenced by what he sees as the most-important trend of our time — the advent of what some economists are calling the “innovation economy.” Skilled labor is now available throughout the world, and engineers and scientists in countries like India and China are willing to work for wages that are a fraction of what Americans expect.

To succeed, he believes, American companies of all sizes must constantly innovate, and develop worldwide purchasing, labor, and marketing strategies. Meanwhile, the U.S. government must get more out of its own residents, and bring in via immigration the best minds the world has to offer, if it hopes to retain the world’s most robust economy, he says.

Mr. Merage’s main charitable interests are all tied to this vision of the future. He wants to help highly qualified legal immigrants thrive; get children from low-income families off to a good educational start so that they don’t later find themselves unemployed because the jobs they are qualified for have been farmed out to overseas workers; nurture mutually beneficial partnerships between American and Israeli companies; and steer the newly christened Paul Merage School of Business at the Irvine campus toward specializing in how companies can sustain profitable growth in the innovation economy.

“His investments all center on the work force, and the future of our economy both globally and regionally in Orange County,” says Michael Ruane, executive director of the Children and Families Commission of Orange County, who serves on an advisory board of Children First, the foundation that encourages seniors to give to youth groups. “They may seem very fragmented, but they’re cogent in terms of the future challenges and opportunities for our youth.”

Three Mortgages

Mr. Merage immigrated to the United States at 16, spent a year at Hope College, in Michigan, and then transferred to the University of California at Berkeley, where he earned bachelor’s and M.B.A. degrees. He worked for nine years at large food companies, including General Foods (which later merged with Kraft Foods), before taking out three mortgages on his home to start Chef America with his brother David in 1977.

Chef America, based in Denver, was still growing rapidly at the time of the 2002 sale to Nestlé, but Mr. Merage, then 58, wanted more time to pursue his philanthropic interests.

“A lot of us get to that point,” Mr. Merage says. “You say, ‘All right, if I have more money, what am I going to do with it? I’ve done this for a lot of years and I can just be stubborn about it and continue to do it, or I can also start getting into other things that can be very fulfilling.’ That argument won over by a wide margin.”

He moved here in 2003, and now manages both his investments (he is serving as a mentor to a son, a nephew, and a son-in-law as they focus on hedge funds, real estate, and start-up companies, respectively) and his giving from the top floor of a four-story office building that is just a stone’s throw from John Wayne Airport.

Douglas K. Freeman, a tax lawyer who has known Mr. Merage since the 1980s, and who helped him set up his foundations, says Mr. Merage knew exactly what he wanted to do after selling Chef America. “Getting focus to his philanthropy was much easier with him than it is with a lot of people,” Mr. Freeman says. “He may not have done much philanthropy before, but it was clear that he had given it a lot of thought.”

Mr. Merage’s first operating foundation — and the one that still seems closest to his heart — was the Merage Foundation for the American Dream. The foundation has sent DVD’s that feature the stories of immigrants who have succeeded in America to some 1,200 high schools with large numbers of immigrant students, in states such as California, Florida, Massachusetts, and Texas.

The foundation also has sponsored three research papers on immigration, including one in March that argued that legal immigration will contribute more than $400-million to the Social Security system over the next 50 years. (The foundation takes no position on illegal immigration.)

Mr. Merage is especially concerned about visa restrictions and some increased opposition to legal immigration following the September 11, 2001, terrorist attacks, which are contributing to modest declines in the number of foreign students at American universities.

Each year, Paul and his wife, Elisabeth (or Lilly, as she is known to many people), and their three children personally select 15 graduating immigrant college students from 21 universities, including Harvard University, Hunter College, and the University of New Mexico, to participate in a fellowship program. The students are nominated by their universities, and are asked to write essays outlining their American dream and how they plan to contribute to the United States. The students receive $10,000 per year for two years, and can use the money to pursue their dream, be it graduate school, travel, or starting a business.

“It’s very, very interesting to see the family around the table debating, because it’s very tough to make that selection,” Mr. Merage says. “Every one of these kids is just so wonderful.”

Among the 2005 fellows is Mohamad Halawi, who came to the United States from Lebanon four and a half years ago with only $1,000. During his first two years at the University of Houston, he worked 65 hours per week at a hotel while taking a full load of science courses.

He recently was chosen for a one-year fellowship at the National Institutes of Health, in Bethesda, Md., after which he plans to go to medical school. His dream is to become a research physician specializing in the genetic causes of cancers, and to discover therapies that could improve the lives of patients.

This month, he attended an awards ceremony held by the Merage Foundation in Newport Beach at which Madeleine Albright, the former secretary of state, who was born in Czechoslovakia, gave a speech. “It’s not just about the money,” Mr. Halawi says of the fellowship. “There are really great opportunities for networking with people who immigrated years ago, and to learn from their career paths.”

Benjamin Johnson, director of the Immigration Policy Center, a division of the American Immigration Law Foundation, in Washington, says Mr. Merage’s foundation “has done an enormous amount of work in a very short period of time,” and that its resources are having a direct impact on the lives of some of the country’s most promising immigrants.

“We can make the ground more fertile for people to live here as immigrants,” Mr. Johnson says, “but the Merage Foundation is really giving people the tools they need to cultivate that ground.”

Israeli CEO’s

Mr. Merage’s second operating foundation, the Merage Foundation for U.S.-Israel Trade, seeks to improve economic growth in Israel by helping that country increase exports to the United States. Mr. Merage’s great-grandfather was a rabbi, and Mr. Merage himself was heavily involved in Denver with the Anti-Defamation League and a local group that brought speakers on the Middle East and Israel to the city.

Twice a year, the foundation brings 15 CEO’s of Israeli companies together for a leadership-training program focused on helping them improve their American marketing strategies. In the summer, the foundation runs a similar program for 15 Israeli M.B.A. students. Israel has a number of promising technology and biotechnology companies, as well as businesses that specialize in products useful for homeland security.

“Israeli companies are constantly innovating, but they don’t know how to get to the U.S. market,” Mr. Merage says. “We’re trying to teach them how to do that.”

The third operating foundation, Children First, encourages affluent people in Orange County to donate their Social Security checks to a fund administered by the Orange County Community Foundation. The fund will make grants of up to $25,000 per year to early-childhood development programs that serve children from needy families. The foundation will also play a matchmaker role, helping to place seniors who would like to work or volunteer at youth organizations. Children First has already received donations from two individuals, and hopes to hit 15 contributions by the end of the year, 20 in 2006, and a much higher figure after that.

Mr. Merage sees Children First as a way to tap not just the money, but also the expertise of retiring baby boomers, many of whom will be healthy enough to contribute their skills to youth organizations for a decade or more. The program was inspired by a similar program in Denver, called Hope for Generations.

He believes that steering the assistance to children who are poor is important because they are most at risk of falling behind. “If they grow up and they have no education, they’re going to have to compete with somebody in China or India for a living, and they’re not going to be able to make it,” Mr. Merage says. “They’re going to be a huge burden on this society.”

Shelley Hoss, president of the Orange County Community Foundation, and a member of the advisory board of Children First, says Mr. Merage has avoided the usual pitfalls faced by new foundations by reaching out to local and national experts.

“He hasn’t approached this in isolation,” Ms. Hoss says. “He’s created foundations with a specific agenda, but he’s done that in a very collaborative manner. When somebody says I’m going to take my business experience and go out and change the world, those efforts can run into trouble when they’re done without reflecting on lessons already learned in the nonprofit world.”

$30-Million Pledge

The operating foundations have been overshadowed in recent months by Mr. Merage’s $30-million pledge to the business school at the University of California at Irvine. The business school will receive $17.5-million now, and $12.5-million after the deaths of Paul and Elisabeth Merage.

The gift is a coup for the Irvine campus, which has been in contact with Mr. Merage for only a year and a half. Mr. Merage chose to invest in the Irvine campus — rather than in his alma mater, the University of California at Berkeley’s Haas School of Business — in part due to proximity, but mainly because he detected a willingness to change on the Irvine campus. The business school, which was founded in 1968, is adopting a thematic approach that will focus on how businesses achieve sustainable, profitable growth.

Mr. Merage says he’s making a “lifetime commitment” to help the school; he is a university trustee and serves as chairman of the advisory board to the business school’s dean, Andrew J. Policano.

“It doesn’t have 100 years of tradition, and as a result it’s willing to embrace change,” Mr. Merage says. “It’s looking for a vision to form its identity, and I think that’s fantastic.”

Mr. Merage is also on the boards of the Orange County Performing Arts Center and the Pacific Symphony. The Merage Jewish Community Center of Orange County was recently renamed that to honor his parents after the family made gifts of $3-million for a new building.

Elisabeth Merage has taken the lead in selecting 15 low-income students from the Orange County High School for the Performing Arts to take an all-expenses-paid summer course at nearby Chapman University to learn about filmmaking.

Mr. Merage brushes away questions about whether he is moving too quickly — or spreading himself too thin — with his philanthropy. He says he mostly does strategic planning, and that others will “do the heavy lifting.”

Mr. Merage has hired Marshall Kaplan, a 70-year-old former dean of the University of Colorado’s Graduate School of Public Affairs, to run his foundations. The two were good friends in Denver, and Mr. Kaplan was willing to relocate here to help carry out what they both describe as a shared philanthropic vision.

Mr. Kaplan has hired one assistant to help him with the immigrant and Israel foundations, and another to work on Children First. That still leaves plenty of work for him. In Mr. Kaplan’s office, file folders are laid out in piles on the floor, next to five open boxes. He has nothing hanging on the walls, and there is just a single plant to brighten the mood.

Mr. Kaplan says the foundations all have very active boards, and that he and Mr. Merage want efficient operations that maximize the dollars going to charity. “If we need extra staff, we’ll get it,” Mr. Kaplan says.

“The real reason I brought Marshall over here is that he gets only two hours of sleep each night,” Mr. Merage says, laughing. “He gives me the rest of his 22 hours.”

Mr. Merage says he is done creating operating foundations for the foreseeable future. He declines to discuss plans for his estate, or to say whether he plans to put more of his personal assets into his family foundation.

“There are lots of different ways of doing this thing, and we have our hands full in terms of what we can do,” he says. “Now we need to focus, commit, and go forth to accomplish.”

PAUL AND ELISABETH MERAGE FAMILY FOUNDATION

History: The foundation was established in 2003 by Paul Merage, a founder of Chef America, the maker of Hot Pockets sandwiches, and his wife, Elisabeth.

Grants: The foundation has assets of $30-million and no annual budget. It provides support for three operating foundations established by the Merages (Children First, the Merage Foundation for the American Dream, and the Merage Foundation for U.S.-Israel Trade) and has made grants to educational, cultural, and Jewish organizations, among others.

Key officials: Paul Merage, president; Elisabeth Merage, secretary; Marshall Kaplan, adviser to the family foundation and executive director of the operating foundations

Application procedures: The family foundation does not have a formal application process, but on occasion may consider unsolicited proposals. Information about the operating foundations is available on the Merage Foundation’s Web site.

Address: 4350 Von Karman Avenue, Suite 400, Newport Beach, Calif. 92660

Web site: http://www.meragefoundations.com